No doubt about it, mortgage documents are often full of words and phrases you may find really hard to understand. But we have compiled a list to help you out.
As a matter of fact, if care is not taken, one might end up filling out mortgage application forms with the wrong information.
When you are applying for a mortgage, you will be given some mortgage documents that explain your mortgage terms and conditions as well as a form you will be required to fill out.
You will also have the opportunity to understand how your lender operates when it comes to mortgage lending. The problem is that you might find some of the words and phrases used in your mortgage documents difficult to understand.
In this jargon buster, I try to explain some of the words and phrases that are often used in mortgage documents to help you understand your mortgage terms and conditions.
#1). Annual Percentage Rate (APR)
The APR takes account of the interest rate you will pay, how you will repay the mortgage, the mortgage term, and any other charges. You can use this information to compare different mortgages.
#2). Arrangement fee or product fee
This is the fee that you pay to the lender for arranging the mortgage.
#3). Capital
This is the amount of money you borrow and pay interest on.
#4). Building survey
Building survey is the survey a qualified surveyor carries out to spot faults and potential problems in the property you are buying.
#5). Completion
This is when you become the legal owner of your new property.
#6). Disbursement
These are charges like Stamp Duty and Land Registry fees that are usually paid to the conveyancer or solicitor.
#7). Contract
This is the legal document that, when signed, makes you the new owner of the property.
#8). Early redemption fee or early repayment charge
This is a fee that you might be charged if you pay your mortgage back early or move to another lender.
#9). Conveyance fee
This is the fee charged by a solicitor or licensed conveyancer for managing the legal paperwork involved in buying and selling a property.
#10). Equity
This is the total value of your property minus the amount of the mortgage. So if your house is worth £120,000 and you have a mortgage of £100,000, you have equity of £20,000.
#11). Credit Scoring
This is a search of your borrowing record which is often called a credit history. A lender will usually check your credit history or credit rating before deciding whether to lend you money.
#12). Endowment
This is an investment plan that you usually pay into each month and that pays out a lump sum at the end of a set period. It is usually used for interest-only mortgages.
#13). Exchange of contracts
This is when you contracts are exchanged with the person selling the property and you are committed to buying the property.
#14). Financial Services Compensation Scheme (FSCS)
The FSCS can pay compensation to customers if a company cannot pay a claim against it.
#15). Financial Ombudsman Service
This is the official independent complaints scheme. It works to sort out complaints between consumers and businesses which provide financial services.
#16). Financial Service Authority (FSA)
The FSA looks after financial services and protects your rights as a consumer. It has been carrying out this role with a mortgage since 2004. Anyone who lends you money needs FSA authorization and must follow their rules when dealing with a customer.
#17). Freehold
This is when you own a property and the land it stands on.
#18). Higher lending charge
If you borrow a high percentage of the price of the property, say 90%, it’s seen as a higher risk than usual for a lender. So you might have to pay this fee.
#19). Interest
This is the money you are charged for borrowing. Interest can be variable (go up and down) or can be fixed.
#20). Key Facts Illustration (KFI)
The KFI is important information for you. It’s set out in a standard way so you can compare a financial service, product, and costs from different providers. Make sure you get them and read them.
#21). Land Registry fee
This is a fee you pay to the Land Registry to register your ownership of the property.
#22). Lease
This is the legal contract that makes a person who buys a leasehold property the legal owner for a certain amount of time. A leaseholder owns the property for that time, but they don’t own the land it stands on.
#23). Loan-to-value
This is usually the ration between the size of the loan you are looking for and the mortgage lender’s valuation of the property.
#24). Legal fees
These are the fees you pay to a solicitor for their services. You will need a solicitor to help you buy or sell a property.
#25). Lump-sum reduction
A lump sum you can pay on top of what you pay each month to reduce your mortgage.
#26). Mortgage deed
The legal agreement that gives the lender rights to your property.
#27). Mortgage exit fee (often referred to as a sealing fee)
A charge at the end of your mortgage, when the property is released to you.
#28). Mortgage term
The length of time you will be paying back your mortgage.
#29). Offer of advance
This is an offer by a mortgage lender to provide you with a mortgage.
#30). Redemption
Paying off your mortgage in full.
#31). Repayments
The amount you have to pay back to the lender (usually monthly) when you borrow the money.
#32). Security
When you take out a mortgage, the security is the property. If you don’t pay your mortgage payments on time, the lender has the right to repossess the property. Also, the lender can sell the property to recover the debt.
#33). Stamp duty
A government tax you pay if you buy a property over a certain value.
#34). Title deeds
The legal documents that explain who owns the property.
#35). Valuation
A check of your property to confirm the value and suitability as security for the mortgage.
